Ryanair profits drop as Iran war puts off passengers and lifts fuel costs

Ryanair’s pre-tax profits fell 34% to €593 million during the second quarter of this year, according to the airline’s latest financial report. The decline came amid rising jet fuel costs and a sharp drop in passenger bookings driven by ongoing tensions in the Middle East. The Irish carrier attributed the drop to the impact of the war between the United States and Iran, which has led to increased uncertainty among travelers. Fuel prices surged following the U.S. and Israeli strikes on Iranian targets in February, forcing Ryanair to raise the cost of operating its fleet. While the airline managed to hedge some of its future fuel expenses, the remaining unfixed costs more than doubled, significantly impacting profitability. Crude oil prices reached $90 per barrel earlier in the week, marking a notable increase, though they later dipped slightly. The situation worsened as fighting intensified near the Strait of Hormuz, a critical shipping channel for global oil and gas exports. Although an interim peace agreement in late May temporarily eased concerns, the breakdown of talks and renewed hostilities caused prices to spike once again. During the same period, Ryanair recorded a slight rise in revenue, increasing by 1% to €4.4 billion. This growth was partly fueled by higher passenger numbers, up 6% to 6.1 million, primarily due to the Easter holiday in April. However, average fares declined by 6% as the airline lowered prices to attract customers wary of traveling amid the geopolitical instability. The company also warned that summer season fares, typically its busiest time, would likely remain modestly below last year’s levels, citing “consumer hesitancy” around air travel. Passenger behavior has shifted, with many booking flights closer to their departure dates rather than months in advance. Despite this, Ryanair’s finance chief, Neil Sorahan, noted that flights on its popular Mediterranean routes remained fully booked. He explained that while travelers are still eager to take vacations, they are delaying decisions until closer to their intended travel dates. This trend suggests a cautious approach among consumers, influenced by the ongoing conflict and associated safety concerns. The airline’s share price dropped 5% on Monday, reflecting investor concerns over the long-term implications of the war on the aviation sector. Analysts have expressed similar worries, with Russ Mould of AJ Bell noting that visibility for the industry remains uncertain. He described the current situation as being akin to navigating through fog at San Francisco International Airport, emphasizing the lack of clarity surrounding the conflict’s resolution. Looking ahead, Ryanair has indicated that its annual results will be heavily influenced by external factors such as the continuation of hostilities in the Middle East and Ukraine, as well as fluctuations in the price of unhedged jet fuel. The airline continues to monitor the evolving landscape, adjusting strategies to mitigate risks while maintaining service levels. As the summer travel season approaches, the airline faces the challenge of balancing fare reductions with the need to sustain profitability in a volatile environment.